Identification Is Not Causality, and Vice Versa

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research

Date Written: August 6, 2017

Abstract

We distinguish between identification and establishing causality. Identification means forming a unique mapping from features of data to quantities that are of interest to economists. Establishing causality by finding sources of exogenous variation is often considered synonymous with identification, but these two concepts are distinct. Exogenous variation is only sometimes necessary and never sufficient to identify economically interesting parameters. Instead, even for causal questions identification must rest on an underlying economic model. We illustrate these points by analyzing identification in three recent papers and by examining the estimation of a simple dynamic model.